tv Bloomberg Daybreak Asia Bloomberg January 31, 2018 6:00pm-8:00pm EST
>> it is 7 a.m. in hong kong and where live from bloomberg headquarters. yvonne: welcome to "daybreak: asia". meet for the last time under janet yellen keeping rates on hold. stocks held onto late gains. the s&p running on its best start since 1997. treasury yields in for your high. liu in new betty york and it is after 6 p.m. and wednesday evening and facebook recovering after our losses. asy are shrugging news people are spending less time
and facebook, and china h and a on a looming cash crunch. the level of debt in china. ♪ yvonne: some breaking news right now, south korea inflation in january looking soft, we see a 1% year on year estimate -- month-to-month numbers edging lower at 4/10 of 1%, it seems the inflation looking to be getting more soft. inething we do get to see the fourth quarter because we start to see the base effect starting to unwind and the stock currency weakness
-- it is certainly playing into that inflation picture and it is essentially -- confirms the analysis that that be ok should bok.on hold -- in the meantime, inflation here looks like it may be picking up pace. that that statement mentioned economic growth and economic conditions might mean further gradual rate increases and too many that meant interest rate hikes coming faster than expected. i want to pull up one of our favorite charts -- it is wirp, and it shows interest rate hikes near almost 100%. rate hike iner
march, and certainly there is a sense where we have heard hawkish comments earlier in the last few months. they could be picking up pace now. yvonne: it is interesting to see the language when it came to inflation and hawkish comments from janet yellen in her last fed meeting. even, andout breaking the stock ended up in the green. equity markets higher and treasury yields were high as well to four-year highs. --ant to bring in romain what happened in the markets? >> you pointed out the work function and a lot of that is what happened today. rates in marchn and to the rest of the year and beyond and factoring in the possibility that they could hike even more than that should they meet their inflation expectations.
we saw a lot of activity coming off of the 10 year treasury yield. of a high already a lot of it coming because of the treasury is going to increase the size of the option. sawthe fed came out and we a hawkish tone and their statement. -- it is the highest we have seen since 2014. an interesting reaction coming out of the market with people trying to figure out what that both supplies will be in the market and what type of monetary sub lies will be -- monetary supplies be supported. betty: are the overall positive equities? on theink so, we started equity side very well, the dow was up to hundred 50 points and a drop mid day, but by the time we got back it rebounded.
we also saw the nasdaq finished higher by nine points and even the s&p heat out a modest gain of one point. may not look like much but if at back-to-back declines, it is good. take a look at boeing, it was the best performer today. it is pulling up parts suppliers -- maybe we can take a look at the videogame makers and we saw positive comments from electronic arts on sales forecast for the year. that helps take two interactive, activision and blizzard which is up three and a half percent to close out today. we also got good results from nintendo as well, talk about the state of the union address, and he mentioned broadly about policies. you see any reaction in stocks?
>> it had less to do with what he said and more to do with what he didn't say and he didn't offer a lot of details on infrastructure and how he is going to pay for it. that hurt cement makers and industrial companies. we saw the s&p gauge that measures construction industry drop today, down about 3.5%. somee flipside you had financials that did well today also because trump didn't mention anything with regards to -- serious bank regulations j.p. morgan chase also higher today. we saw other strengthen the financial stocks today. one sector that did worse was the nasdaq biotech's. of --bought up the price the possibility of driving up drug prices, and biotech
dropped. betty: digesting the news with amazon and jpmorgan as well. romain, thank you so much. let's take a look at how asian markets are set up for this thursday. 7368 for the kiwi dollar, as we start the asian session, australia getting the third of 1%. the for the aussie -- official numbers were a bit of an offset when it came to manufacturing, and trade coming underway in japan with futures pointing to a bounce back on the nikkei 225.
109.21 -- let's get you caught up with first world news. romain was speaking about boeing, and it has been given 6.5 billion dollars to continue managing the u.s. defense system intended to should enemy rockets out of the sky. on contract extends boeings 22023 -- critics say the system can destroy less than half of targets in the 70 times tested and since 2004, it is three for nine. has held relations with china as a model for the country after brexit. and the leader offered a bullish vision of the trade future, setting up a panel to review commercial airline's. lengths. china is expected to be the biggest investor in the u k --
>> when we leave the european union, the agreed to a joint review of joint trade investment review, which i think is a good step towards looking to future trade relations can be when we have that freedom outside of membership of the european union. the fbi director told the white house he is against the release of a classified republican memo alleging buyers --. i.s. at the bureau it contains negative information and paints a false narrative regarding the election and is currently being reviewed by national security lawyers. ua's oil production has climbed to over $10 billion a day for the first time in four decades. comes weeks after
the international energy agency says the u.s. was poised for explosive growth in oil output that would push it past saudi arabia and russia this year. wti is rising torts $65 in new york. global news, 24 hours a day, powered by more than 2,700 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. lots more coming up on daybreak asia. the outlook for some of china's biggest conglomerates -- find out about mounting cash flow problems. yvonne: and an exclusive interview in less than 20 minutes. this is bloomberg. ♪
i am betty liu in new york. yvonne: janet yellen's last meeting in charge, we continue paving the way for a fed hike in march. catherine hayes is in new york with more on this. this is a more hawkish fed or not? >> it is leaning in that direction. it shows a lot more concerned with inflation, but to underscore, they are on the path. ahead of the policy pen, this is how you do it when you get the statements. let's start with a key sentence. economic conditions will of all gradual warn further increases, but guess what, they added the word further. if you are going to have more this year, you better start in march.
they said that not only does the gdp look solid, they applied the and adjective to spending, it is another tweak to watch. the important tweaks are in inflation language. in the january meeting they said they expect inflation to move up this year. in december, they seem to show more confidence. they noted measures of market compensation, wages, salaries, etc. moved up in months. wage gains is going to go in the next chart, the yellow line is the fed's 2% target. the white line is that pce core which is down 1.5, and the overall deflator is at nearly 1.8. not as weak as they were, but not at 2%.
-- and theesting note he wrote up after the decision that is a look that much more confident a year ago. he pointed out that the fed in fact said the risk to the economy remained roughly balanced. they may take out roughly and they might show confidence in the outlook, but even so, you look at futures. projections,t-rate you can see this is a slamdunk, a done deal. the chances of a hike are up to 95.9%. i suspect it won't be long before we get to 100%. betty: not very long at all from that, what should be -- what should we be watching? >> the combination of wages and
benefits, moving from 2.5 to 2.6, so a little progress there. government jobs report came in stronger than the forecast suggesting that payrolls should look pretty good. wherems of fiscal policy, all thinking about what infrastructure spending tax cuts -- nothing touches on this. it is interesting that former fed chair alan greenspan, 18 years at the hell was on bloomberg television earlier and is concerned about the deficit and what it will do for the economy. let's listen. >> we are dealing with a fiscally unstable and outlook, the breakout is going to be upside, the question is when? we have been through it almost a decade now of stagnation, and we are working our way.
this is a delicate task, they want to see inflation rise, they want to see it at 2%, but talks are more concerned with where the fed is heading and if they wait too long inflation will catch some fire. that means they have to hike rates more aggressively and with more quickly, and that is the kind of thing that will unsettle the economy. but wait a minute, we have been below that 2% target and can afford to let it up to 2% and move higher before we actually take that next step. but we shall see, marches a couple of months away, and jay powell, we will be hearing his confirmation in early february. i'm sure he will be speaking as well. maybe we will get a sense of what the new fed chair sees. betty: kathleen, thank you. news, eithering has reports earlier but there
ebay is replacing paypal as their primary payment processor. even though they had disagreements, they will be moving to abn and become their primary payment processor after paypal has reported forecasts short of wall street estimates. signe: i guess it is a that these two companies are distancing themselves after the split in 2015, but ebay says the shift will result in lower losses and costs for merchants. also greater options for buyers as well, so something to watch here on ebay. at the moment, will continue the conversation with an exclusive interview with out brought, will get views on the timing of the next rate hike and janet yellen's successor. that is coming later on.
yvonne: this is daybreak asia. from: facebook recovering the after our slump caused by disappointing fourth-quarter results. shares are actually up now by 1%, but daily active users came slightly below forecast. sarah joining us from san , and mark zuckerberg warned that those results were going to be worse than previously because they changed some things around to make them use in different for users. >> facebook is saying they are trying to emphasize time well --nt -- and minipill meaningful interaction. it already has an impact on interaction. decline,unts for a 5%
and the declines in north america are the first thing being seen, so that is concerning to investors. it stock dropped but recovered after facebook said this is a temporary bump that engagement in north america -- you have so many users -- and are so penetrated and evolved. is anybody wondering if this is the beginning of a downtrend? analysts are worried about that, but to be fair the company is still growing in markets worldwide, but the u.s. is the biggest advertising market and once there could be daily active user decline in europe as their privacy laws going to affect. people are going to be watching whether engagement is in fact going to continue to be a problem and whether that can be due to facebook's changes to the newsfeed or whether that is something more fundamental that
people want to be on facebook. beyond facebook's control, i think another question is over quality or quantity, what winds out here and could it have an impact on advertising revenue for facebook? theye company says that don't expect changes to impact advertising revenue but they are taking steps to make sure that apps on facebook are good for users. ads onthat they banned and they geties -- criticized for their impact on society. yvonne: can they build on new businesses? what about other business lines like instagram? when are we going to see that reflected in terms of revenue? that it ishe things interesting is that stories, the posts on instagram and on the
other apps that they have to are shared for 24 hours and thatpear -- they expect stories are going to overtake feet posts as the most common form of socials sharing down the line. that is significant and they have been able to make ads in instagram stories come and that meaningful part of their revenue. we'll see that increase and hopefully facebook will get people to use that more on the facebook app. results, facebook mentioned it is temporary, what implications do they have to if any on its competitors like snap? >> facebook is growing so much faster than competitors like twitter, and when it comes to snap, what i mentioned about stories. stories is a product that's not invented, and this is a case where facebook is eating snaps storiesnd are bringing
where snapped doesn't have the resources to penetrate yet, so it is concerning for them. yvonne: sarah, thank you for breaking that down for us. let's do a quick check of the latest newsflash. largest banks took advantage of the last quarter -- boasting higher profits even as lending income fell. to $2.1me climbed billion and achieved profit goals with a quarter to spare. percentted a nine profit jump -- provisions for loans and treasury income fell, and that income dropped to $259 million, well below the expected 357 million. their want to boost the balance sheet by raising provisions from
delinquent borrowers. icic little change. nintendo posted profits next to robust shipment in the holiday season. it is the strongest sign yet that the consul can be a long-term success. at $1.5 billion and japan's-- biggest messaging service reported a surprise loss in the fourth quarter. betty: 37 billion dollars in the red, $21 million profit despite that sales beating predictions at $421 million. shares jump in the earnings report that they are expanding into financial services, including cryptocurrency trading. yvonne: we'll have more earnings analysis coming out next and how
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a chilly hong kong and we are minutes away for the first major market open. betty: and it is 6:30 p.m. in new york with markets rebounding from losses after the hawkish tilt of the fed, i am betty lou in new york. innne: and i am yvonne man hong kong, and a look at first world news. fed met for the first time, keeping rates unchanged but setting the stage under jay powell. expect conditions will of all in a manner, adding the word further to the previous
statement. the fed said that the near to risk appeared to be roughly balanced. president xi is asking for china to propel long-term growth, the country needs to make better use of global markets and resources and to improve the economy to enhance international competitiveness. in october party that invest technology should be embedded to the economy to improve governance. china's great fire sell is ready to go. billions him to sell of dollars in assets and the first have to pay down debt and avoid a cash crunch. would come in the second quarter, h and a has already admitted a shortfall of almost two and a half billion dollars in the first three months. day in india where prime minister faces a difficult balancing act.
he must way fiscal prudence of handing out cash to placate voters in next year's election. the government wants to keep global investors onside, and he will be sticking to the goal of narrowing one of the biggest budget deficits and asia. global news, 24 hours a day, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. february has arrived and the new trading month for all of us, and what could drive market futures. we are seeing a bit of a pullback in the last couple of days and markets are doing a bit of a balancing, and they really just met, but are we heading towards a decline? >> it seems like we have been waiting for a correction and we have seen warnings for morgan stanley that we have technical valuation metrics flashing. investors might be reluctant to
-- lowt, and that growth multiples, keeping buying interest peaked. is thel market, that two-year, and stocks in hong kong maintaining their gains over this course of time. goldman remaining strategically bullish recognizing that a correction is looming given the extent of the rally. despite petering out a touch in january -- we had stocks in the region up almost 6%. while it looks like a mixed start to february, there could be fresh rallies and a repeat performance of pmi data. we didn't quite get that from south korea with cpi coming in slower than forecast, we have indonesia and thailand up, and to kick off, we also
have korean trade data and we are waiting in the us federal budget. we are waiting for approvals due in about an hour, and check out aussie shares, we have stocks fixing gains for the first date in sydney. he hath utilities leading the charge there, and real estate stocks climbing half a percent. coming in this morning, following a midsize of the boom in sydney had peaked as regulators crackdown on lending. pimco says there is a cold currency war underway, tell us about that story. nature -- thaty is what the trump administration is doing with the dollar, sending an implicit but clear signal to markets that a weaker dollar is indeed the goal. even with steve mnuchin walking back his comments in davos --
the u.s. winning against japan -- others, that is helping we have the aussie, indian, bucking the trend. fromte the dollar sliding that hawkish rhetoric. lenovo earnings coming through in the fourth quarter, and the top line, that was a over $2 billion, and the bottom line was a miss your. 280 $8 million -- there were expecting a profit of a hundred 24 .5 million, so we are sunni to losses for lenovo, but it is down to the pc growth which is driven by europe, latin america, and china are you there is weakness when it comes to the u.s. as well, so we will continue to watch those lines from the local -- lenovo.
helped by cloud businesses, the tax charge caused the company to report a net loss. have go to seattle, and we been listening to the company conference call. what are the highlights here? you mentioned the very large tax charge which is related to the new u.s. tax law that --uires the company to take to pay taxes on overseas income. billions and short-term investments part overseas, and we were expecting that. the question we haven't got an answer to is that if they are not paying a taxable as required, we don't know if they're going to be bringing that cash back to the u.s. and what they're going to do with it. shareholders are wondering if they're going to do a larger buyback or dividend or acquisition. they did not comment at all on that today.
apart from that, the numbers were really good. their sales beat, their profits beat, it is fueled by the cloud service and the office business that continues to chug along. tois generally pleasing investors. betty: given the timing, they are sitting on a lot of cash. shouldn't they be spending more on this and further expansion to now that gap with amazon? to are going to increase spending which has gone for cloud ada centers. the narrowing -- cloud data centers. look at estimates on their business overall, they are five times as big as microsoft. ask, did on who you narrowing of the gap is a
function of winning over more customers and continuing to add to the product, which is what microsoft is doing. in a hugely because they got into the business earlier and they have a far larger customer base. beensoft's growth has significant for them, and almost doubled over the last quarter, and anna last are noting that microsoft took a couple of points of shares from amazon's web services. yvonne: you heard anything about the intel chip flaw and can microsoft benefit from this? >> they didn't discuss it on the call, but she referred me back to comments made previously and said that they are working with customers and securities -- we haven't gotten any new information on that today. what you are talking about is obviously one of the things -- the patch actually slows down performance for some customers, so there is sense that customers might need to buy more service
to get back to where they were before the started. we don't know if that will up revenue or customers will demand microsoft or intel to give them a cost break on that. betty: thank you for that. now let's talk about some of the other tech earnings. ands tech earnings season we have amazon, apple tomorrow, google are all leading the way on thursday. we had facebook a few hours ago, and joining us now for analysis is business professor scott galloway. of the hiddenthor dna of amazon, apple, facebook, and google. let's start with facebook. it doesn't seem like a surprise, but still, the reality with the number of facebook is that people are going last to that site. the engagement is down. the time is down. zuckerberg wore the about that,
but is it due to algorithms are people are getting frustrated with facebook? >> i saw the announcement as a beat. if you take out the adjustment on the tax they beat out earnings. it looks like their costs have gone up, which kind of reflects strong management. betty: they are operating well. >> i thought it is an incredible beat amidst this noise. there are operating very well and i believe instagram is the most powerful platform in the world. betty: why? >> in terms of engagement. there are 10 times more likely than the facebook platform to engage, and instagram -- they reprinted -- reinvented the imaging industry. it appeals to a core to 30,phic, it 18
wealthy, which every brand once in their franchise by it it is a triple threat of advertising. betty: can instagram become bigger than facebook itself? >> they got this outstanding franchise called facebook that has assembled the largest community in the world. they have this growth vehicle called instagram, so it is a fantastic combination and they can share data between the two. they can have a salesforce. i believe over time the companies will be broken up, but, for out of the top five apps, were 80% of our time is spent is on a facebook property. four guns ofas the facebook aimed at it. step is the walking dead -- snap.
betty: one comment from mark zuckerberg -- it's an to you it is a good report, but zuckerberg continues to be asked questions if people are being turned away from facebook and turned off by what they have seen last year. this is what he said. >> when of the important things we can do is to make sure that our services are fun to use and that people's well-being and society as well. we have announced a couple of important updates. the first is prioritizing meaningful interactions over passive consumption of content. betty: by the way, can be sound any more like a robot? [laughter] >> he has crisis consultants right now. betty: does he have to continue making the statements? backpedaling -- the damage in a crisis is the crisis itself, but the crisis -- how
you respond to the crisis, but how you correct. the knee-jerk reaction would be to say it is an isolated incident. what did they do? they said that this is crazy, and then they said it is millions, and now it looks at it is tens of millions, and people are angry and they refuse to acknowledge. are not a media company, we are a tech platform, which is ridiculous. they are playing defense for the first time in a long while, but nots going to be it is going to be a consumer revolution -- there is no choice. you have facebook and google, oly of digitalduop control. the business will continue to accelerate but you will see contraction and multiples because of federal regulation. want to switch gears
with amazon because they report later. there is this trio with amazon, jpmorgan and berkshire, how can these three actually shake up the health industry? >> we have absolutely no idea. was going to represent amazon, i refer to her as the $33 billion woman. amazon comes in to any a jediand can perform mind trick and inflicting pain on somebody by wishing it l -- in my view it is another example of how markets are failing. the markets have too much power, whether announcing acquisitions , amazon looks, it glasses at an industry and d.c.
tens of billions of dollars shed from the industry. the most interesting thing here -- everybody starts declining. does it lead to lower drug prices? the greaterer for good that could help the economy and help other companies as well? obviously an it is incredible problem, but i hope it works. what i took away from today after seeing a press release with three names with no details around how the are going to bring that health care costs, i see every company start to throw up market capitalization and health care sector. amazon can literally shut off the mother's milk of any business and capital. yvonne: really quickly, we have apple results tomorrow, do you
think iphone x is when apple jumped the shark? is this the peak moment for apple? >> apple is going to be around for a long time, but the story of 2018 will be the passing of the mental of the most viable company in the world to amazon because where now switching for the most important device from the iphone the next important device, and that is amazon echo. to seescott, great you. be sure to check out his book. much more ahead and we will talk about one of the top stories of the day, which is the latest policy statement, our exclusive statement coming up in just a few moments. this is bloomberg. ♪
yvonne: let's return to our top stories. janet yellen and rate hikes, our economics editor is back, and also joining us is former richmond head president. let's quickly set the stage of what we heard from janet yellen today. >> you didn't hear from janet weeks ofhat we got was further rate increases coming. appears the inflation outlook will make it seem like they are confident that they're going to head towards that 2% target, even adding the word solid to describe growth. i know you are looking at these things at the note you sent out, are you confident, does the fed get a higher rate this year? it is still an open question as always with these things.
i have to believe that the recent data, the way the market measures inflation expectations that have been behaving -- the probability that inflation will rise has increased. i think that is what this statement reflected more than anything else. concern about the possibility that inflation will not move up to target over the last several months has been one of the things holding the fed up a bit. i don't mean to of implied that the fed will go broke and raise rates aggressively, but what this means is that there seems to be a greater comfort level that inflation will rise to target, which means rates will again to move up. they have signaled three increases -- it is different from what we expect to happen in march.
an issue has been, will there be two more or three more this year? this doesn't answer the question, but the statement suggests that the odds are hired that you may get for increases this year. we saw a soft selloff -- but the question is the yield curve has gotten less flat and statement. if they go to three or four, what does that do with the yield curve? isn't that dangerous? fair question, but my thought is that it want. on't. you have different behaviors, that if the to see signal occurs and you do in fact get some suggestion of higher inflation, i think that is going to be reflected in a somewhat
higher yield. curve slope may not ,hange much, but i don't see unless there is aggressive tightening. i don't think that is a remote possibility. any of this going to reverse the downtrend that we have seen in the u.s. dollar? that,would tend to do there are lots of other things going on in the foreign exchange markets, as you know. there are two sides of the story, that is what is going on in the u.s. and overseas. this prospects for rates overseas, especially in europe is one of the things that has been holding the dollar down. other things being equal, what happened in the meeting today and the statement released tend
to put upward pressure than downward pressure on the dollar. but,: you would think so, it may continue. what do you think will be the key things that the fed will be watching in the next few months? i think much of the focus will be on the inflation signals. datau look at inflation that comes in, there's going to be things like break even spreads to get a sense of where market expectations are going. influencedon rate is -- we have a tight labor market. -- the linkage of labor markets, and is probably continue to see the strengthening of economic giveh, that may tend to
some greater tightness the labor market. it may push wages, and that could cause some rise in inflation or inflation expectations. those are the things i think the committee will be focusing on in the months ahead. budget also with this deficit, the u.s. is said to be issuing more debt to counter the mounting that deficit of a trillion dollars. how do you think jay powell is going to react? >> that of course will put upward pressure on market interest rates as the treasury demands more credit in-depth markets. the fed will have to respond to that, and those underlying pressures become clearer and
obvious. i think the fed tends to of aase the probability rapid increase in fed policy rates. but again, i wouldn't carry this too far. the impact of the deficit on fed policy, it is not likely to be immediate, it will be a longer-term influence that may be pushing rates up over the longer-term. i want to ask you about the new personnel and voters because the presidents who will be voting tend to be a bit more hawkish. so we know very well, marvin -- is in line potentially to be on the board. >> is this going to inclined the
fed more? in particular, what kind of fin be?r will mr. good thin you will be extraordinary, i surly hope it well. marvin is a truly brilliant federal reserve economist. i worked with him closely for a in the of a century and time since, in 10 years, he has continued to study the fed from his position at carnegie mellon. he has a long, deep understanding of fed policy and what needs to be done for the fed to make a contribution to the economy to help hold inflation down and provide the kind of monetary stability we need to have a stronger economy. he would be a terrific addition.
i do think so much that he will be a hawk or a dove. he has look at the data to deal with, and the main think he needs to understand is that the fed issa maintain its credibility. with the public and financial markets. wholieve he will be someone will ensure that will take place if he is on the board of governors. betty: thank you for joining us. always great to have you with us. yvonne: there you have it. he thinks that marvin good friend is going to be -- goodfin, is going to be very good. our global economics policy editor kathleen hays. coming up next on daybreak asia, more insight into the fed decision after janet yellen --
in :00 a.m. in hong kong. i am yvonne man and welcome to daybreak asia. the top stories, the end of an era, the fed will meet for the last time under janet yellen. signaling hikes in march and beyond. paypal, and ebay jumped after hours, and paypal fell off a cliff. betty: and from bloomberg headquarters, this wednesday evening, talking trade. post-brexit,alks and the great fire sale in
china. off a cash crunch, and the level of debt. ♪ yvonne: we are getting breaking news from south korea at this hour. the trade surplus coming in smaller than what economists estimated. why is importson are coming in higher than what economists surveyed. an increase in imports against expectations. --orts still robust here despite the stronger won. this is all for the month of january. that import number quite a big jump from what we saw in prior
months. yvonne, we are seeing exports and how robust they can be with the stronger currency. yvonne: it seems they are overlooking and shrugging. this is after the base of facts were not favorable. we saw double-digit growth of january of last year, so this is a strong number here. take a look at the market impact. asian investors are holding out hope for a fresh month bringing fresh values at the end of january. we are seeing gains up 6/10 of a percent. get theirnvestors may cue after the boj confirmed -- you have the yen trading above. traction, upining
6/10 of 1%, but there is trepidation on bank stocks -- after facebook said user growth -- and apple report earnings on february 2, and alibaba, and alphabet. i.t. stocks along with health care and materials energy also gaining ground. despite an uptick rebuild of u.s. inventory report on wednesday. are going toors have the trade data to consider along with the cpi number that came in this morning lower than forecast. let's check in on korean companies that reported earnings. chemical delivering disappointing results in the fourth quarter with both earning the ratings downgrade to hold at
hsbc. at stocks inok tokyo, checking in on nintendo after a blowout third quarter of profits outperforming -- after reporting a surprise loss in the fourth quarter, and its foray into crypto crunch trading. -- and fujifilm is on the radar after xerox ceded control the $18 billion company. is leading tokyo gains. betty: thank you so much. looking at the movers in the early going, and a stronger than expected trade numbers in south korea. let's get a look at first world news. >> boeing is being given six in
the half billion dollars to continue managing u.s. defense systems intended to shoot enemy rockets out of the sky. expense boeing until 2023, and brings billionon to 26 dollars. critics say they have destroyed the targets less than half percent when tested. hasdirector says that he told the white house use against the release of a republican memo. he things it contains inaccurate information and paints a false narrative. the memo deals with a legend russian interference in elections. china's great fire sale is ready to go. creditorshas told that 60 millions -- $16 billion of assets are being sold to deal
with the crab crunch -- cap crunch. budget day in india where prime minister faces a difficult balancing act. he must way fiscal prudence to placate rural voters ahead of next year's elections. the government wants to keep global investors on side, and the key to that will be sticking to the goal of narrowing the largest deficit -- budget deficits and asia. starting at 4 p.m. sydney time, and that is 1 p.m. in hong kong. global news, 24 hours a day, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. of the top stories today, the fed keeping its rate unchanged.
taking the way for the hike in march where jay powell takes the helm. bloomberg economics editor kathleen hays is here for more. away, i think february 5 is when we will see jay powell sworn in as the next chair of the federal reserve. what did janet yellen's committee tell us and what did it do? no changes in rates by hence that suggest that the reserve is getting more confident and inflation in a statement that they said we see more signs of labor compensation starting to rise. they also talked about doing further rate increases, adding that word to a key sentence, solid growth all around. this is what led many, it isn't that they changed the path, it is clear that janet yellen is powell, by jerome
so now let's bring in someone was part of that path for many years. dennis lockhart, who was the president -- we are glad to have him back to share his view of where the fed is going. it, when you look at the policy statement coming is it reassuring that powell is going to follow in the footsteps or are things going to pick up and do for rate hikes instead of three? get your question exactly, but what is in the mind of people is really whether we four,ing to see three or which is a possibility, or fewer than three. i think the likelihood is that if it is not three, it is more likely to be four than two.
i think the committee is comfortable with the economy situation, and as you pointed out in the commentary, the view of inflation is that it is firming, and i think this puts the committee in a very comfortable position. the indication is they are going to stay the course as projected into december. at the same time it looks that nothing much has changed. there has been little science, but inflation is still far from target and the economy is growing -- is there a risk in the fed doing too much too fast? is a minorityt view of the committee, and there's early a couple of dissenters. they basically projected the
view that there is no urgency in raising the policy rate. might as well wait and see regarding inflation. i think that there is probably risk to the upside in terms of votes -- growth and inflation and the committee is watching that. we are just seeing the firming of inflation from the position. still below the 2%. they're not concerned about overheating. talking aboutn this transition for so long that now it is upon us with janet yellen and jay powell. so much of the commentary is that is going to be a smooth transition, but do you think the markets are going to try to test powell in the first few days or weeks to see if he is going to
be able to maintain that stability that we have seen in the last two years? first let me say about jay powell, he is an extremely confident guy and he is well cared for the job. the idea that the market might test a new chair, i don't find plausible. committed to a continuation of the gradual rate rise policy that the committee has been pursuing for quite some time. think they want to keep options open and the language in today's statement was minimalist. the language changes were very few, and that provides flexibility for jay powell to get comfortable in the new position. from a policy point of view,
flexibility to respond to what the data seems to be indicating. i think this is a time to be and not betable overly concerned about the policy. yvonne: what do you think is going to be jay powell's priorities in the first couple of weeks of taking office? is nottioned the economy overheating, but the market is showing signs of overheating. you think you'll be forced to act aggressively? chair, soon-to-be chairman powell will be spending he is in a sure position to speak for the committee overall.
that is a unique role. there is a big difference between being governor, and even the vice chair of the federal reserve and being the chair. he has his first press conference coming and in all likelihood in march, and he will be preparing for that. in order to get the markets and the public a certain amount of confidence that the new chair is really up to the job, and in control of things. community that, the is spending its time thinking longer-term, thinking strategically of the policy framework in the future, under various circumstances, including circumstances of a recession developing sooner or later. in an likelihood, environment where the policy remains low by historical standards. not so muchnking,
about the absolute near-term, but the longer-term framework of conducting policy. >> alan greenspan was on earlier about global and rising inflation -- i read a piece about the possibility of banks having risk leverage. as jay the big risk powell takes the helm? isthe economy certainly clocking around nicely. there is more outside risk than inflation risk than downside at the moment. i do think that the committee, or some members of the committee are thinking about the potential of and overshoot that goes further than they would like. having to tighten a little bit more aggressively
than the gradual pace that has been communicated, effectively over the last few months, even starting in 2015 when rate increases began. i think the outside risk of and overshoot is on the minds of some members of the committee. obviously, you would like to avoid having to put your feet on ay thatkes on the weight it was planned or expected. -- jay powelltion has a lot of expertise. we expect a lighter hand in his leadership and what will that mean for the financial system? >> he has a fair amount of expertise for sure in financial
stability questions. i think it will take leadership in that. what is unusual about jay powell is that he has done all of the key jobs for some. of time within the federal time. banks overseen reserve and understands that reserve role, he isional familiar with payments. he has expertise from recent months in financial stability's. he is extremely versatile and prepared, and it is inevitable that a new chair is going to not entirely,, but dominantly to monetary
policy. as spokesman of the committee, his role is so important. betty: thank you so much for joining us. dennis lockhart, and thank you to global economic policy editor kathleen hays. still ahead, tough choices facing budget day today. yvonne: and theresa may faces deals from china. this is bloomberg. ♪
and may continue its first they visit. it's get more from beijing. all seems pretty rosy in the moment, taking the link of the -- rekindling of the golden era. >> yesterday, after their meeting, the relationship was strengthening and moving towards the right direction, and this agreement to set up a high level review panel to look into commercial ties between the two countries and to move those ties forward does take both countries and a step in the right direction when it comes to the potential of a possible future trade agreement. brexit is casting a shadow over this visit by theresa may. she is seen as a weaken political figure and there are concerns by some in china that it weakens britain's role in the international stage.
theresa may says brexit is an opportunity with the u.k. china relationship. of the future of the relationship with the u.k. and china when we leave the european union, we agreed of a joint review, of joint trade investment review which i think is a good step towards looking to what our future trade relations could be an we have that freedom outside of membership of the european union. britishu said, businesses are hoping to sign deals worth about 13 billion u.s. dollars. we will wait on that in the next few hours, and we are waiting to hear about financial services because the china have said they marketspared to open up -- and upon market between london and china, and the chinese want to import more british beef and dairy products. betty: have both sides said what
they want to achieve with this visit? thene key concern is that chinese would have loved the reason make to sign off formally on the initiative. she announced it present opportunities, and the british side hopes to gain more traction on this london-shanghai relationship. brought up the issue of human rights and may bring up hong kong democracy later today. north korea may also be a topic of conversation with president xi, so they have everything, and they have a panel review taking them closer to this potential free trade agreement. may's meeting president xi later this afternoon, so we'll bring you more details. betty: tom, thank you. don't forget our interactive tv
yvonne: we are getting breaking news with fujifilm surging, the most since 2013 after the news of a deal with xerox. is the iconic company, ceding control to fujifilm and creating $18 billion company that will result in a loss of 10,000 jobs though in this revamp. fujifilming control to , and fujifilm going up almost 12% now.
ebay is also jumping in the trade and dumping paypal and going dutch. this story broke in the last hour, and the latest -- they have this deal in place with paypal through 2020, so why did they make this announcement? and ebay split in 2015, and as a result of that split, the companies have been so intertwined, to have a relationship for so many years now that they couldn't completely unwind on day one. they had an agreement to continue with ebay using paypal as the payments processor, so what was announced today is that people said over the next couple of years it is going to unwind that relationship and replace -- ebay will replace paypal with dutch company. yvonne: what is ebay hoping to accomplish with this change? i guess we were expecting it
given the split in 2015, but what is the target here? >> it wasn't expected at it came as a surprise. ebay and paypal don't traditionally report on the same both companiese reported earnings on the same day and also at the same time of the earnings call, there would be some site -- sort of agreement. ebay wants to give sellers lower and is also hoping to give shoppers more flexibility. where does that leave paypal now? is playing damage control and shares reacted after market, but they are saying it doesn't affect their financial guidance at all. yvonne: spencer, thank you. in a moment, we are talking about china's debt.
yvonne: beautiful look outside singapore, a: 30 in the lion city, half an hour from the open of trading. i am yvonne man in hong kong. betty: looks like a beautiful day. i'm betty liu in new york. you are watching daybreak asia. let's get to the first word news with selina wang. selina last timemet for the under janet yellen, keeping rates unchanged but setting the stage for a rise in march. the fomc expects condition will
evolve in a manner that warrants further gradual increases. the fed again said that near-term risks to the economic outlook appear to be roughly balanced. u.k. prime minister theresa may has vowed to fight eu attempts to extend protection for ex-pats until 2021 as a condition for a transition period. may said the block should stick to its original cut off date of march 2019. she said there is a clear difference between people who want to put britain before brexit and those who arrive knowing the u.k. is no longer a member of the eu. u.s. oil production has climbed above 10 million barrels a day for the first time in four decades, another indication of the shift in global crude markets. the milestone comes weeks after the international energy agency says the u.s. was poised for explosive growth in oil output. that would push it past saudi arabia and russia in 2018. wti is rising toward $65 in new york. is calling on china
to embrace big data and artificial intelligence to propel long-term growth. he says the country needs to make better use of global markets and resources and improve the economy to enhance its international competitiveness. he told the party congress in october that advanced technology should be embedded in the real economy to improve governance. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am selina wang. this is bloomberg. yvonne: thank you, selena. time to see how the asian markets are shaping up. let's get the latest with sophie kamaruddin. you have chipmaker samsung, the biggest boost so far, along with the likes of costco and neighbor. the drop you are seeing in
players like samsung, sei, along with korean financial stocks. in tokyo, japanese investors are taking their cue from the boj, confirming negative yen said with its increasing bond price. set to rise for the first day in seven as investors digest corporate results. fujifilm,highlight rising the most since 2008, over 11%, surging on the back of the xerox deal, which could see an $18 billion company created. back to the mood on the nikkei 225. i want to highlight some players. we do have this one, this retailer climate despite forecasting a tumble in profits. but department store sales are seen recovering. fujitsuggards in tokyo, , the worst performers over at today after its third-quarter prompted a downgrade to neutral.
fujitsu does anticipate a positive impact on net income from the sale of its mobile operations to polaris capital. checking on the mood in sydney following the building approvals data, lower than forecasted on a yearly baseless databases, falling 5.5% in december compared to the estimate for an 11% rise. we do have real estate stocks gaining ground, up .33%. whole price data signaling that prices did decline last month. the boom in sydney is seen cooling-off. we do have utilities and consumer discretionary stocks leading gains in sydney. virgin australia now, after credit suisse cut the stock to neutral amid the prospect of hna selling its stake due to balance sheet concerns. under pressure this morning. betty: thank you so much, looking at some of the movers. china's great firesale looks set to take off even more.
chinese debt ridden conglomerate it isid to tell creditors going to sell $16 billion in assets the first half of this year. stephen engle has more on this area -- on this. stephen: the chinese government is vowing to crack down on irrational purchases and the debt loads at these big conglomerates. it is a crackdown. those companies you just mentioned, including hna and also anbang insurance. they are kind of in the vise grip of the regulators and authorities, to sell or dispose of a lot of assets that they have been accumulating. let's start with hna, the parent company of how non-airlines and other ventures. as of the end of june, they had 185.2 billion yuan in short-term debt. the have a short flaw -- shortfall paying off servicing
the debt of $2.4 billion funding gap. they are said to be repaying the debt to stave off a liquidity crunch. 80% of this, according to people familiar with what is happening behind the scenes, 80% should be executed by the second quarter of this year. theyfamiliar spent tens of billf dollars gobbling up stakes in companies and properties around the globe, stakes in deutsche bank, hilton. $14.5 billion property investments over the past decade, including hong kong, new york, singapore, australia. disposals have already begun. they have agreed to sell a sydney office building to blackstone. hong kong, they are inviting outside investors to come into a block they bought for $1.8 billion a little over a year ago. two office buildings said to be for sale in young did -- in london's canary wharf. it goes on, including seeking to
sell a more high profile one in new york, 11 eighty ave of the americas building. yvonne: we have been waiting for this news for some time. they are playing catch-up. what is the latest on that and anbang? stephen: we can take a look at wanda. we have been chronically getting -- chronicling both the rise and fall. they have sold their stake in the u.s. shipping company for a lot. a little while ago, they bought it for 6.4 million shares at $7.30 -- excuse me, bought it for $12.27, selling ever $7.30, a considerable loss. people familiar say two overseas properties in chicago, also a high-profile one in beverly hills are said to be on the block. they have already agreed to sell real estate assets in sydney and london. monday we heard about this commercial property unit
announcing plans to sell about $5.4 billion of shares to four companies, including tencent and synnex. yvonne: we want to bring in our next guest, head of research, joining us in the hong kong studio. thanks for joining us. we are calling it the great china bailout. what's next? it is just the beginning, i guess? >> yes. we have seen the theories to raise cash. from the description steve mentioned, it seems the company has been really good in the is actually are number of real estate properties around the world, really good properties. now that the situation has turned for them and they have to seek far south -- seek firesale. normally you don't get a good price. yvonne: is there a limit to how much value hna can get from
these assets? there is an assumption they have overpaid over the years and they have already sold some at a loss. not to mention many projects have already been used as collateral to continue on their buying spree. >> more leverage. it is difficult to say. nobody can claim to know exactly what is going on behind the curtain. i would say there has been suspicion that some companies have been using overseas acquisition as a channel to move assets, to move money overseas. ,t times they overpaid overpaying for european properties, for example. taking some losses on purpose so they have to pay a hefty penalty to move money overseas. stuff like that. if you remember, early 2017, rmb was under quite a bit of pressure.
even though now it is coming back. 2017, we're seeing the government cut down to stem the outflow of chinese assets overseas. >> they are trying to stem the capital outflows, but also the accumulation of debt. do you see any parallels to what japan did in the 1980's? >> it is a popular comparison. , it is say that for now to china specific. also in 2018, it could be minor. the focus for the government is to prevent and resolve systemic financial risk. what we are seeing right now is one of the steps to resolve this kind of thing. stephen: do you think they have a handle on it? we have also gotten word from some ratings agencies that this could be the year we get the first default from a local
government financing vehicle. is there a bigger problem that they know about and we don't? >> difficult to say. [laughter] vf you look at how the lgf bonds are in hong kong, it seems the market remains largely calm. there had been2, even more concerns on lgfv debts back then. china muddled through. since 2016, the chinese government had been trying to use -- had been trying to swap high interest rate debt to low interest rate and to low interest rate and do debt in equity swap as well. these are helping to alleviate some things. from a rating agency perspective, maybe some of the vehicles may face a cash crunch and there could be a late payment, for example.
they should not be too much of a surprise in an environment such as this. the principle mostly should be guaranteed. if you lose the credit on the lgfv, it would make the situation even worse because the funding cost would go higher. betty: as we are seeing more and more of these refinancing challenges, what areas or what sectors and industries do you think we are going to see the biggest risks in china? the environment of rising interest rates affect everybody. i would say if you look at the structure, the debt structure of the lgfv and local government debt, it is mostly infrastructure spending and acquisition and also other projects. those projects tend to be longer and slower to generate cash flow. that is one of the reasons why they run into trouble now. the 20 mind that most of
trillion local government debt is domestically traded. i think less than 5% of the debt is held by barwin. -- by borrowing. from a chinese government perspective, moving money from the left pocket into the right pocket. it is very difficult for your kids to default on parents. the situation looks more precarious this year than last year. at the same time, keep in mind that the governments can be quite resourceful when dealing with such issues. nily: is the chance almost that any type of liquidity crisis, financing crisis is going to spill out of china? that it is going to remain very contained within the country? but there is no sense that there is going to be any spillover effect elsewhere? marketsnk for now the
seem to be at ease with the potential risk. if you look at the bottom market, in general market use has been rising, market interest rate rising. at the same time, when you see the liquidity in the market is tight in the domestic market, the pboc moves in. you see a reverse ripple. some instruments to inject liquidity into the system. even though the funding conditions remain tight and interest-rate level is we are not so far seeing the potential systemic risk for now. also the focus for the government this year is really trying to sort of resolve and alleviate such risks. with that in mind, if you still remember in june 2013, there was a liquidity crisis. there was sort of the first
major liquidity crisis in the chinese system. if you look at what the pboc and government did during that when the market funding environment was very tight, the pboc moved in decisively, trying to inject liquidity into the system. ever since then, if you look at how the stock market has done, june 2013 is actually the lowest point for the chinese stock market in recent years. ever since then, the chinese market has been moving up. yearld say yes, this because of the leverage in the system across the many years, the leverage is very high and risk is also rising. at the same time, the government can be very resourceful. yvonne: only time for one more question. what is the cautionary tale here? this is a time when china is looking to the market for financing when it comes to projects like one belt, one road.
i'm guessing for an projects will be called upon for that. what should they be cognizant of? >> that's a good question. stephen: i was thinking the same thing, that's a good question. >> very good question. within rating agencies, there seems to be concerned about china's leverage level. at the same time, just keep in mind that much of the financing is domestically -- is done domestically. china does not have so much foreign debt. also the chinese currency is appreciating in value. it's sort of alleviates some of the burden's, the liability burdens. environment -- because most of the issues domestically and the government is at the back of all of this leverage. it is very difficult to have a general default in the system. yvonne: morgan stanley was saying spending could be
betty: now to india, because thursday is budget day for asia's third-largest economy. with elections on the horizon, narendra modi is under pressure to loosen the purse strings. ramy inocencio with a preview and the charts we need to know. ramy: he has a choice to make. one, to continue to chip away at the deficit. or two, add to the deficit by infusing the voters that he
calls his base. take a look at what is happening behind me, #btv. we are taking a look at 6.3% growth. we are not seeing much great growth that we have been seeing ever since 2015-2016, but the lows we are seeing from 2014. the big thing for this is a of bond investors are thinking that the finance minister will not stick to budget plans, because this is the situation. slowing gdp growth. we are thinking he might not actually pull ahead with continued budget reduction. to my next bloomberg terminal chart, #btv 1013, this is a look at the debt to gdp ratio for india. for 2018 andecasts 2019, 3 .2% 2018, 3% 2019. analysts are thinking this is not going to be the reality. for example, b.i. came out with
some numbers. 3.5% is what they are thinking. hsbc thinks india will come in at 3.4%. for 2019, bloomberg intelligence thinking they will be up by 0.2%. owing to the fact that budget reduction may not be in the cards. there are some other weights. let's show everyone what that is in terms of what those weights are. the first thing, we are talking about falling revenue. gst collection was ruled out. probably down about 8% in the past six months. there is a nod to the non-investor base, possible tax bake -- tax break removal. gross borrowing may rise by 7%, continuing his push also towards higher costs. is #btv 5692. talk about those loans, but look
at the performance of india's loans in blue. the nonperforming loans make up 9.2% of what is out there, its highest since 2002-2003 or so. the red bars is a comparison with china. we always talk about china, their npl's. they are doing pretty well. india not so much. we leave it there as we look ahead to the finance ministers talk and his revelation about the budget. yvonne: let's bring in our next guest. she expects a good budget later on this afternoon, without jeopardizing fiscal consolidation. she is the chief india economist , joining us live from singapore. thanks for joining us. heard so much debate, especially with the economic advisor earlier this week, talking about how he prefers modi loosening the purse strings. confusion in the market right now. why do you think modi can afford to keep his fiscal promise? the financial year
is concerned, 2018, it has been a big year from a growth perspective. tax revenues have taken ahead. the expectation for 2018 they will miss the fiscal deficit target, 3.5% versus what they predicted. if you take a forward-looking be a -- forward-looking be oh, it is going to pick up. we think they will do a lot of asset sales going forward. a lot of funding can be done off balance sheets via public sector companies actually spending. on theernment can focus base and common man issues, but it can be prudent populism. ruler roads, electrification, political and economic benefits.
we do think while the fy 2018 deficit will be missed, fy 2019, fiscal consolidation will be there. expecting a lower deficit of 3.2% of gdp. yvonne: seems like a dilemma, either one of the other. cut the deficit to 3% of gdp or boost investment by higher spending to spur growth. you reduce the bottlenecks in the economy. is the trade-off that clear-cut? is there a chance you could actually accommodate and achieve both of those objectives? sonal: the trade-off is difficult to manage if you have a slowing economy. that was the case the last 12 months. the when you have an economy on the cusp of a cyclical recovery -- we think we will see a there hasecovery -- been a 50% increase in registered taxpayer base in the indirect tax collection, said
tax buoyancy is going to pick up. markets are doing fairly well, so the government can do asset sales. so, sincea is less the growth cycle is picking up. not all measures need to be announced today. there can be a lot of measures announced outside the budget. there can be trade policy measures, foreign policy, export policy, etc., to essentially keep farm prices high. minimum support prices can be increased outside the budget. the budget is going to see more ,llegations for the rural areas because there has been more allocation toward affordable housing, the power sector, the infrastructure sector, financed off-balance-sheet. and a lot of measures outside the budget we think are going to be announced. i don't think there is going to be an at right populist budget in terms of free money being thrown into the hands of rural
consumers. betty: do you think there are going to be some external factors that may help constrain spending, if there are worries that perhaps the doves, you could say, get out of hand a bit in this budget? higher oil prices, for instance. is that a factor in helping constrain any spending? sonal: absolutely. there are two main risks for the government, for the next 12 months. , both higher oil prices higher subsidies as well as incomes of lower excise collections. the government is collecting close to 1% of gdp on account of more excise collections on petroleum products. second is the buoyancy in equity markets would be important, because this year was the first time in many years the government managed to sell more assets than a budgeted. the buoyancy in stock markets is also a function of global sentiment.
it would also be quite critical for them to be able to balance in impossible, in a sense, up but not jeopardizing consolidation. yvonne: thank you so much for joining us. so now pharma, chief indian economist. you can watch our special coverage of the indian budget on bloomberg, including the finance minister's full speech at 1:00 p.m. in hong kong, midnight eastern. that is it from daybreak "asia. market coverage continues with rishaad and haidi. yvonne: standby for bloomberg markets. this is bloomberg. ♪
rishaad: the end of an era as janet yellen chairs are last meeting. hold but signals there may be hikes in march. later, a $400 million charge in the u.s., analysts predicting a profit. and copy that -- xerox concedes defeat after more than 100 years , fujifilm taking control macron an $18 billion deal. i am rishaad salama in hong kong. haidi: i am haidi lun in sydney. also coming up, budget day in india. the government is walking a fiscal tight rope, maintain prudence or offer giveaways